“Plush Carpet Mills Case
Study
1.
Look at the current ratio and the quick (acid-test) ratio of PCM. What trends do you
notice over 2012 – 14, and what does this suggest about PCMs liquidity? How
does PCMs liquidity in 2014 compare with the industry average?
Both of the current ratio
and quick ratio are decreasing. Over the period of three years, current ratio
is in a falling trend indicating the liquidity of the company has decrease
throughout the years. The industry average is 1.6 and the current ratio for the
year 2014 is 1.53 which is around the industry average.

2.
Now
study the accounts receivables turnover, average collection period, inventory
turnover, and average days of inventory for PCM. What do these patterns suggest
about the firms conversion of accounts receivable and inventories to cash?
A high turnover means higher sales and lower turnover
inventory means more goods in the stores. Besides, it indicates more storage
costs are incurred for maintaining the inventory. The inventory turnover is in
falling trend showing the demand for the goods produced by the firm has
decreased over the period concerned. A
high accounts receivable shows firm is efficient in collecting payments from
debtors and a low turnover tells the story of working capital blocked in
receivables. The firm has seen inefficiency in managing debtors indicated by a
falling trend in receivable turnover.

3.
Considering
your answers to the two questions above, what is your overall assessment of
PCMs liquidity position? What two major factors account for your assessment?
An overall assessment about the firm’s liquidity would be:
a.The current ratio, accounts receivable turnover and inventory turnover
are all in a falling trend considering firm specific financials. However the
firm has reported current ratio for the year 2014, in line with industry and
inventory turnover above industry average. Only receivable turnover is below
industry. This means there is inflationary. Hence the firm has decided to offer
flexible and extended credit period when compared with industry so that the
demand of goods can be maintained in a certain level.
b. The Liquidity of the firm is in a considerable position as the entire
industry seems to suffer due to falling purchasing power of customers.

4.
What is
your assessment of the manner in which PCM is managing its assets? Pay
attention to both trends and industry averages.
Asset turnover indicates of the efficiency of the firm with which the
firm can use its fixed assets to generate revenue. The firm could not effectively
use its assets to generate revenue indicated by falling trend over the years
under concern. However the firm has reported asset turnover for the year 2014,
in line with industry: it indicates the near efficiency standards for the year
they said. The return on asset also indicates the efficiency of the company in
management of its assets. It is a description of the return earned from each
dollar invested in the fixed assets used to carry on its business. This ratio
for the firm shows the increasing trend, and for the current year the firm is
even better than industry averages.

5.
What is
your assessment of the manner in which PCM is financing its assets? Pay
attention to both trends and industry averages. What is the relationship
between the debt to equity ratio and times interest earned as these relate to
PCM? And is there any other possible explanation (outside of the firms
financial statements) for the observed trend in times interest earned?
Relationship between D/E ratio and times interest earned ratio: The
increase in D/E ratio the times interest ratio is decreasing. This means
increase in debt content in capital, the interest cost is increasing ,but the
earnings is not increasing to that level that times interest ratio is falling.

6. What can you say about PCMs gross profit
ratio and net profit ratio? Explain any patterns observed.
The operating margin of the PCM is
increasing, but for the year it is still under industry average. The net profit
margin for the firm is also increasing and for the year it is even more than
the industry average. It means that the operating expenses incurred by the firm
are above industry standards but the interest and taxes are in controlled
stage.

7.
How are
PCMs net profit ratio, and asset turnover ratio affecting the firms pre-tax
return on assets (ROA) and return on equity (ROE)? What is your overall
assessment of the firms profitability, including its earnings per share (EPS)?

The
relationship between return on asset, net profit margin and total asset
turnover is that : Return on assets= net profit times total assets turnover
Total debt ratio = debt/total assets This means there is an increase in debt
and return on assets, the return on equity will increase because the trading on
equity .

8.
Referring
to PCMs statement of cash flow for 2013 and 2014, assess PCMs cash flow
situation noting both inflows and outflows?
The company has raised additional long term
debt and has do the expansion both its operating and investing activities for
the year compared to the previous year. This is a sign of growth and available
of profit opportunities to the company. The company keeps a policy of dividend
payout to keep the shareholders compete for the returns indicated by increase
in dividend.

9.
Based
on your answers to the questions above, what is your overall evaluation of
PCMs financial condition? (Pull all your analysis together in answering this
question.)

Overall, the firm is above the industry
average, by considering majority of results on ratio analysis were above or in
line with industry averages. Also, though a decreasing financial scenario when
considered on independent part, but the company has a positive scenario in
industry for the current year.

10. What is the markets assessment of PCMs
financial condition? Explain. Does the markets assessment confirm or refute
your analysis?

PCM when assessed will have a positive
picture scenario due to overall ratio analysis.

11. Based on
your evaluation of PCM and the markets assessment of the firm, would you
accept employment with the company? Explain.

I would accept employment with the company, since the market assessment
and my evaluation would suggest a not that strong positive financial scenario
for the year 2014
Plush Carpet Mills Case
Study1.
Look at
the current ratio and the quick (acid-test) ratio of PCM. What trends do you
notice over 2012 – 14, and what does this suggest about PCMs liquidity? How
does PCMs liquidity in 2014 compare with the industry average?Both of the current ratio
and quick ratio are decreasing. Over the period of three years, current ratio
is in a falling trend indicating the liquidity of the company has decrease
throughout the years. The industry average is 1.6 and the current ratio for the
year 2014 is 1.53 which is around the industry average.2.
Now
study the accounts receivables turnover, average collection period, inventory
turnover, and average days of inventory for PCM. What do these patterns suggest
about the firms conversion of accounts receivable and inventories to cash? A high turnover means higher sales and lower turnover
inventory means more goods in the stores. Besides, it indicates more storage
costs are incurred for maintaining the inventory. The inventory turnover is in
falling trend showing the demand for the goods produced by the firm has
decreased over the period concerned. A
high accounts receivable shows firm is efficient in collecting payments from
debtors and a low turnover tells the story of working capital blocked in
receivables. The firm has seen inefficiency in managing debtors indicated by a
falling trend in receivable turnover.3.
Considering
your answers to the two questions above, what is your overall assessment of
PCMs liquidity position? What two major factors account for your assessment?An overall assessment about the firm’s liquidity would be: a.The current ratio, accounts receivable turnover and inventory turnover
are all in a falling trend considering firm specific financials. However the
firm has reported current ratio for the year 2014, in line with industry and
inventory turnover above industry average. Only receivable turnover is below
industry. This means there is inflationary. Hence the firm has decided to offer
flexible and extended credit period when compared with industry so that the
demand of goods can be maintained in a certain level. b. The Liquidity of the firm is in a considerable position as the entire
industry seems to suffer due to falling purchasing power of customers.4.
What is
your assessment of the manner in which PCM is managing its assets? Pay
attention to both trends and industry averages. Asset turnover indicates of the efficiency of the firm with which the
firm can use its fixed assets to generate revenue. The firm could not effectively
use its assets to generate revenue indicated by falling trend over the years
under concern. However the firm has reported asset turnover for the year 2014,
in line with industry: it indicates the near efficiency standards for the year
they said. The return on asset also indicates the efficiency of the company in
management of its assets. It is a description of the return earned from each
dollar invested in the fixed assets used to carry on its business. This ratio
for the firm shows the increasing trend, and for the current year the firm is
even better than industry averages.5.
What is
your assessment of the manner in which PCM is financing its assets? Pay
attention to both trends and industry averages. What is the relationship
between the debt to equity ratio and times interest earned as these relate to
PCM? And is there any other possible explanation (outside of the firms
financial statements) for the observed trend in times interest earned?Relationship between D/E ratio and times interest earned ratio: The
increase in D/E ratio the times interest ratio is decreasing. This means
increase in debt content in capital, the interest cost is increasing ,but the
earnings is not increasing to that level that times interest ratio is falling.6. What can you say about PCMs gross profit
ratio and net profit ratio? Explain any patterns observed. The operating margin of the PCM is
increasing, but for the year it is still under industry average. The net profit
margin for the firm is also increasing and for the year it is even more than
the industry average. It means that the operating expenses incurred by the firm
are above industry standards but the interest and taxes are in controlled
stage.7.
How are
PCMs net profit ratio, and asset turnover ratio affecting the firms pre-tax
return on assets (ROA) and return on equity (ROE)? What is your overall
assessment of the firms profitability, including its earnings per share (EPS)?
The
relationship between return on asset, net profit margin and total asset
turnover is that : Return on assets= net profit times total assets turnover
Total debt ratio = debt/total assets This means there is an increase in debt
and return on assets, the return on equity will increase because the trading on
equity .8.
Referring
to PCMs statement of cash flow for 2013 and 2014, assess PCMs cash flow
situation noting both inflows and outflows?The company has raised additional long term
debt and has do the expansion both its operating and investing activities for
the year compared to the previous year. This is a sign of growth and available
of profit opportunities to the company. The company keeps a policy of dividend
payout to keep the shareholders compete for the returns indicated by increase
in dividend.9.
Based
on your answers to the questions above, what is your overall evaluation of
PCMs financial condition? (Pull all your analysis together in answering this
question.) Overall, the firm is above the industry
average, by considering majority of results on ratio analysis were above or in
line with industry averages. Also, though a decreasing financial scenario when
considered on independent part, but the company has a positive scenario in
industry for the current year.10. What is the markets assessment of PCMs
financial condition? Explain. Does the markets assessment confirm or refute
your analysis? PCM when assessed will have a positive
picture scenario due to overall ratio analysis.11. Based on
your evaluation of PCM and the markets assessment of the firm, would you
accept employment with the company? Explain. I would accept employment with the company, since the market assessment
and my evaluation would suggest a not that strong positive financial scenario
for the year 2014”